Double entry records each transaction with equal total debits and credits in the business’s accounts. To decide where an amount goes, identify the affected accounts, classify them, and decide whether each increases or decreases. “Debit” does not always mean money received, and “credit” does not always mean money paid.
These double-entry ledger worked examples follow one fictional trader, Pendo Stationery. All amounts are illustrative KSh. We keep the business separate from its owner, assume no opening balances, and ignore tax, discounts and returns. Purchases of goods for resale use a Purchases account under a periodic inventory approach. We do not record a separate cost-of-sales entry for each sale; closing inventory and final accounts are outside this exercise.
The account rules used here
| Account type | Increase | Decrease |
|---|---|---|
| Asset, such as cash or equipment | Debit | Credit |
| Liability, such as a supplier payable | Credit | Debit |
| Capital | Credit | Debit |
| Income, such as sales | Credit | Debit |
| Expense, such as rent | Debit | Credit |
| Drawings | Debit | Credit |
Purchases of resale goods are debited to Purchases in our stated system. Equipment bought for use in the business goes to Equipment instead. This distinction depends on what was bought and why, not simply on whether the transaction contains the word “bought”. A customer who owes the business creates a receivable, an asset; a supplier owed money creates a payable, a liability.
Six transactions and both sides of every entry
| Date | Transaction | Debit account | Credit account | KSh on each side |
|---|---|---|---|---|
| 1 April | Owner introduces cash | Cash | Capital | 60,000 |
| 2 April | Buy equipment for cash | Equipment | Cash | 18,000 |
| 3 April | Buy resale goods on credit from Kito Suppliers | Purchases | Kito Suppliers | 15,000 |
| 4 April | Sell goods on credit to Lela Stores | Lela Stores | Sales | 9,000 |
| 5 April | Receive cash from Lela Stores | Cash | Lela Stores | 6,000 |
| 6 April | Pay cash to Kito Suppliers | Kito Suppliers | Cash | 8,000 |
The total transaction debits are KSh116,000, and total transaction credits are also KSh116,000. The six amounts are entered twice, once on each side of the system. This does not mean recording two identical debit entries or keeping the seller’s accounts as well as the buyer’s. Every entry here belongs to Pendo Stationery.
Worked analysis 1: owner funding and equipment
On 1 April, the business gains cash of KSh60,000, an increase in an asset, so Cash is debited. The owner’s contribution increases Capital, which is credited. It is not Sales: no customer bought goods from the business.
On 2 April, Equipment increases by KSh18,000, so Equipment is debited. Cash decreases by the same amount and is credited. One asset replaces part of another. Do not debit Purchases merely because equipment was purchased; the stated purpose is business use, not resale. These two transactions leave cash of KSh42,000 before the later receipts and payments.
Worked analysis 2: buying on credit
On 3 April, resale goods worth KSh15,000 arrive without an immediate cash payment. Debit Purchases under the periodic approach used here. Credit Kito Suppliers because the amount the business owes this supplier increases.
There is no Cash entry on this date. “Credit purchase” describes delayed payment, but you still need to identify the particular credited account. When Kito is paid KSh8,000 on 6 April, debit Kito Suppliers to reduce the liability and credit Cash to record the cash reduction. The unpaid amount is KSh15,000 − KSh8,000 = KSh7,000.
Worked analysis 3: selling on credit and collecting payment
On 4 April, debit Lela Stores with KSh9,000 because this customer now owes the business money. Credit Sales with KSh9,000 because sales income has arisen. No cash is received at the time of sale.
On 5 April, debit Cash with the KSh6,000 received and credit Lela Stores to reduce the receivable. Do not credit Sales again: that would record the same sale twice. Lela’s remaining debt is KSh9,000 − KSh6,000 = KSh3,000. Collecting a debt exchanges one asset, the receivable, for another asset, cash.
Post the entries into T accounts
Each ledger entry names the account containing the other side of the transaction. Thus the receipt from Lela appears as “Lela Stores” on the debit side of Cash, while “Cash” appears on the credit side of Lela Stores. Dates and cross-references make it possible to trace each pair.
The tables below keep debit entries on the left and credit entries on the right. A dash means no corresponding entry in that row; it is not a zero-value transaction. Row alignment is for layout and does not pair two new transactions.
Cash account
| Debit date | Details | KSh | Credit date | Details | KSh |
|---|---|---|---|---|---|
| 1 Apr | Capital | 60,000 | 2 Apr | Equipment | 18,000 |
| 5 Apr | Lela Stores | 6,000 | 6 Apr | Kito Suppliers | 8,000 |
| — | — | — | 30 Apr | Balance c/d | 40,000 |
| 30 Apr | Total | 66,000 | 30 Apr | Total | 66,000 |
| 1 May | Balance b/d | 40,000 | — | — | — |
Subtract the cash credits from the cash debits: 66,000 − 26,000 = 40,000. Put balance carried down, or c/d, on the smaller credit side so both sides total 66,000. Bring it down, b/d, on the debit side in the next period. This is a debit balance even though the balancing line appeared temporarily on the credit side.
Kito Suppliers account
| Debit date | Details | KSh | Credit date | Details | KSh |
|---|---|---|---|---|---|
| 6 Apr | Cash | 8,000 | 3 Apr | Purchases | 15,000 |
| 30 Apr | Balance c/d | 7,000 | — | — | — |
| 30 Apr | Total | 15,000 | 30 Apr | Total | 15,000 |
| — | — | — | 1 May | Balance b/d | 7,000 |
The original credit exceeds the payment debit by KSh7,000. Balance c/d goes on the debit side; balance b/d returns to the credit side. The balance represents what Pendo still owes, not another payment to Kito.
Lela Stores account
| Debit date | Details | KSh | Credit date | Details | KSh |
|---|---|---|---|---|---|
| 4 Apr | Sales | 9,000 | 5 Apr | Cash | 6,000 |
| — | — | — | 30 Apr | Balance c/d | 3,000 |
| 30 Apr | Total | 9,000 | 30 Apr | Total | 9,000 |
| 1 May | Balance b/d | 3,000 | — | — | — |
For the remaining accounts, the transaction list gives Equipment a debit of 18,000, Purchases a debit of 15,000, Capital a credit of 60,000 and Sales a credit of 9,000. Combined with the three balances above, debit balances total KSh76,000 and credit balances total KSh76,000, before closing entries or inventory adjustments.
Four independent practice transactions
Answer each separately. Do not add these transactions to Pendo’s six-transaction case.
Practice 1: cash sale
A trader sells resale goods for KSh2,400 cash. Use the same periodic approach.
Solved answer: Debit Cash KSh2,400 and credit Sales KSh2,400. Cash, an asset, increases; sales income increases. There is no customer receivable because payment is immediate.
Practice 2: current rent
A trader pays KSh1,500 cash for the current month’s shop rent, with no previous rent liability.
Solved answer: Debit Rent expense KSh1,500 and credit Cash KSh1,500. The business incurs the stated expense and its cash decreases. The assumptions rule out settling a previously recorded payable.
Practice 3: owner’s withdrawal
The owner takes KSh900 from business cash for personal use.
Solved answer: Debit Drawings KSh900 and credit Cash KSh900. The withdrawal reduces business resources for the owner’s benefit. It is not an ordinary operating expense or a cash sale.
Practice 4: equipment on credit
A trader buys a KSh7,000 printer for office use on credit from Mali Equipment.
Solved answer: Debit Equipment KSh7,000 and credit Mali Equipment KSh7,000. The printer increases an asset, and the unpaid amount increases a liability. Neither Cash nor Purchases is used for this transaction.
Frequently asked questions
Does double entry always use exactly two accounts?
No. A compound transaction can involve several accounts. Total debits must equal total credits; these introductory examples each use one debit and one credit.
Is a credit balance always bad?
No. Credit describes an account side. Capital and sales normally increase through credits, while an asset increase is normally a debit.
Why does balance c/d appear on the opposite side?
It fills the difference needed to equalise the two account totals. The balance b/d shows the side on which the remaining balance belongs.
Is balancing the same as correcting an error?
No. Balancing calculates an account’s net amount. An incorrect entry must be investigated and corrected; inserting an unexplained figure does not repair it.
Does an agreeing trial balance prove every entry is correct?
No. Omitting an entire transaction or using the wrong account on both sides can leave totals equal. Check descriptions and account classifications as well as arithmetic.
Why is customer payment not another sale?
The sale was recorded when the credit transaction occurred. The later receipt reduces the customer’s debt and increases cash without creating another sale.
Can purchases be treated differently in another question?
Yes. Inventory systems and instructions matter. Follow the stated system consistently; this lesson explicitly uses a periodic Purchases account for resale goods.
References and further revision
ACCA’s explanation of accounting principles and duality supports the account logic. For existing site resources, visit Business Studies topical revision; resource contents may require membership and login. This fictional classroom exercise is not tax, legal or personal financial advice.
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